Offload more than $1.32 b worth equity after May 11 peak

Rajesh Abraham

Future & options

Unwinding their positions in derivatives markets as well

In F&O consistent

with the stand that valuations are stretched.

Mumbai, May 24

Foreign funds have become net sellers for $1.13 billion (Rs 5,041.03 crore) in May, their biggest sales in a month since the Indian stock markets opened up to overseas portfolio investors in the early 1990s.

The Securities and Exchange Board of India and NSE data showed FIIs have offloaded more than $1.32 billion almost Rs 6,000 crore worth equity after the market peak of May 11. The previous high for single month sales by foreign funds was in October last year at $840.90 million (Rs 3,693.90 crore) and before that in May 2004 when FII outflows touched $780.90 million (Rs 3,436 crore).

Significantly, the FIIs are unwinding their positions in the derivatives markets also, despite huge opportunities for arbitrage, experts said.

In the index futures alone, FIIs have reduced positions worth Rs 2,738.70 crore since last Thursday indicating expectation of markets correcting further in the short-term. "Arbitrage opportunities in the derivatives market is not explored in India in a big way. On Wednesday, the Nifty futures were trading at a discount of 40 points," said Mr Viral Doshi, Head of Derivatives at Networth Stock and Securities Ltd. "This (huge discount) will not happen in a mature derivatives market," said Mr Doshi, who is a faculty member at the BSE Training Institute for Derivatives.

Foreign funds unwinding positions in F&O (futures and options) is consistent with their stand that valuations in the Indian markets are stretched, said a senior official in a local brokerage firm. "Last few months have seen the biggest ever inflows. Now, this month has seen the biggest ever outflows," said Mr Kunj Bansal, Chief Investment Officer, Religare.

Analysts also point out that from about 500 registered FIIs in 2004, the figure has touched 910. "FIIs, which have entered the Indian capital market at low levels, may be slowly offloading their positions," an official with a mutual fund said, adding that most of the new entrants and domestic institutions could be net buyers.

(This article was published in the Business Line print edition dated May 25, 2006)
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